IMF urges Saudi Arabia to resist temptation to spend, as oil prices rise

IMF urges Saudi Arabia to resist temptation to spend, as oil prices rise
As oil prices rise, Saudi Arabia has been advised to avoid ramping up state spending and get its finances in order.
2 min read
23 May, 2018
Saudi Arabia is pursuing an ambitious new project to transform the economy [AFP]

Saudi Arabia has been advised by the International Monetary Fund (IMF) not to increase spending, as oil prices reach $80 a barrel and are predicted to go higher.

The agency said that Riyadh should resist the urge to increase spending on the public sector and instead set its sights on balancing its budget.

"The primary challenges for the government going forward are to sustain the implementation of the bold structural changes that are underway, meet the medium-term fiscal targets it has set, and resist the temptation to re-expand government spending in line with higher oil prices," the report said.

"Targeting a balanced budget in 2023 is appropriate. The government should now focus on delivering on this objective. Limiting the growth of government spending will be necessary to achieve the fiscal targets."

Saudi Arabia began to cut back on its bloated public sector when oil prices tanked in 2014, dropping from $120 to less than $30 in 2016.


Attempts to massively curb spending saw GDP shrank in 2017 for the first time since 2009. 

The IMF had earlier warned Saudi's leadership not too cut spending too fast fearing it would risk slowing down economic growth and suggested Riyadh move its deadline for balancing its budget from 2020 to 2023.

Riyadh's Vision 2030 economic plan - engineered by powerful Crown Prince Mohammed bin Salman - aims at shrinking the public sector, rapidly expanding the private sector, and balancing state budgets.

The IMF said that these steps have seen Saudi Arabia's economy in a much healthier position.

"The government remains committed to wide-ranging economic and social reforms to transform the economy away from its traditional reliance on oil and to create a more dynamic private sector that creates jobs for the growing working-age population," the IMF stated.

The economic plan aims at opening the economy up to foreign investment, and present the conservative society with more entertainment options and establishing a tourism industry.

State spending to achieve this target is huge with revenues brought it from the part-privitisation of state-owned oil firm Saudi Aramco hoping to fund these goals.